March 19 (Bloomberg) -- TDR DOO, Croatia’s biggest
cigarette maker, sees net income falling at least 10 percent
after it loses free-trade access to four Balkan markets when the
country joins the European Union.

The Rovinj-based company, part of Adris Grupa d.d., will
start paying customs in Bosnia-Herzegovina and Kosovo, and face
higher rates in Serbia and Macedonia after July 1, when Croatia
exits the Central European Free Trade Agreement, or CEFTA,
because of EU entry, said Chief Executive Officer Davor
Tomaskovic. He estimated the cost at 10 million euros ($12.9
million).

“The earnings decline would be in the low double-digits,
unless Croatia, or the European Commission, negotiate some
reduction in customs” with CEFTA countries, he said.
Alternatively, TDR may start production in one of the Balkan
states, which would increase costs as well, Tomaskovic said.

TDR, which held 32 percent of the market in Bosnia, 9
percent in Kosovo, 8.1 percent in Serbia, and 7 percent in
Macedonia last year, makes cigarettes only in Croatia.

Membership in both the EU and CEFTA is not allowed, so TDR
will face customs duties in Bosnia and Kosovo of 15 and 10
percent respectively. The rate will go to 57 percent from 15
percent in Serbia and to 42 percent from 27 percent in
Macedonia.

The biggest cigarette market in the region, Serbia, is seen
shrinking more than 10 percent this year to about 220 million
euros net value, excluding excise and other taxes, as the
government keeps increasing levies on tobacco products in line
with EU directives, Tomaskovic said.

The decline may be even bigger unless the authorities stem
growth of informal trade in cut tobacco, sold on farmers’
markets and not subject to any tax, he said.